Question 1

Among potential stores of value, money

Accepted Answer

A)   offers the highest rate of return.
B)   increases in value during periods of inflation.
C)   has the advantage of being the most liquid asset.
D)   provides more services than the other assets.

Question 2

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

Accepted Answer

A)   open market operations.
B)   securitization.
C)   fractional reserve lending.
D)   seigniorage.

Question 3

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Accepted Answer

A) True 
 B)False

Question 4

Economies cannot function without money.

Accepted Answer

A) True 
 B)False

Question 5

Although gold is highly valued by most people, it is difficult to use as a medium of exchange. Explain.

Accepted Answer

Gold is an example of commodity money. T...

Question 6

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

Accepted Answer

A)   $0.
B)   $5 million.
C)   $15 million.
D)   $20 million.

Question 7

Which of the following tools of monetary policy is used least often?

Accepted Answer

A)   open market operations
B)   setting the required reserve ratio
C)   setting the discount rate
D)   acting as a lender of last resort

Question 8

The German Hyperinflation of the early 1920s was caused by

Accepted Answer

A)   the German government raising funds for expenditures by selling bonds to the central bank.
B)   an overly aggressive monetary policy implemented to combat a severe recession.
C)   rising oil prices after World War I caused a severe stagflation and hyperinflation.
D)   large deficits resulting from the high levels of war spending and falling taxes.

Question 9

To increase the money supply, the Federal Reserve could

Accepted Answer

A)   raise the discount rate.
B)   decrease income taxes.
C)   raise the required reserve ratio.
D)   conduct an open market purchase of Treasury securities.
E)   lower transfer payments.

Question 10

Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 5 percent. If the Federal Reserve lowers the required reserve ratio to 3 percent, then the bank will now have excess reserves of

Accepted Answer

A)   $0.
B)   $2,000.
C)   $3,000.
D)   $5,000.

Question 11

The statement, "My iPhone is worth $300" represents money's function as

Accepted Answer

A)   a medium of exchange.
B)   a unit of account.
C)   a store of value.
D)   a standard of deferred payment.

Question 12

The quantity equation states that

Accepted Answer

A)   the money supply (M)  divided by the velocity of money (V)  equals the price level (P)  divided by real output (Y) , i.e., M/V = P/Y.
B)   M × V = P × Y.
C)   M + V = P + Y.
D)   M - V = P - Y.

Question 13

Which of the following is not counted in M1?

Accepted Answer

A)   checking account balances
B)   credit card balances
C)   coins in circulation
D)   currency in circulation
E)   traveler's check balances

Question 14

If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ________ the real-world multiplier.

Accepted Answer

A)   is greater than
B)   is less than
C)   is equal to
D)   bears no relationship to

Question 15

Which of the following is the most liquid asset?

Accepted Answer

A)   a Renoir painting
B)   bonds
C)   a car
D)   money

Question 16

According to the quantity theory of money, inflation is caused by

Accepted Answer

A)   the money supply growing slower than real GDP.
B)   GDP growing faster than the money supply.
C)   GDP growing at the same rate as the money supply.
D)   the money supply growing faster than real GDP.

Question 17

The Fed has complete control over the money supply.

Accepted Answer

A) True 
 B)False

Question 18

In the United States, each bank panic in the late nineteenth and early twentieth centuries was accompanied by

Accepted Answer

A)   inflation.
B)   deflation.
C)   a depression.
D)   a recession.

Question 19

Which of the following best describes how banks create money?

Accepted Answer

A)   Banks charge higher interest rates on loans than they pay on deposits.
B)   Banks charge fees for providing financial advice.
C)   Banks create checking account deposits when making loans from excess reserves.
D)   Banks make loans from reserves.

Question 20

An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries.

Accepted Answer

A) True 
 B)False

Exam 25: Money, Banks, and the Federal Reserve System

Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 5 percent. If the Federal Reserve lowers the required reserve ratio to 3 percent, then the bank will now have excess reserves of

Correct AnswerverifiedShow Answer

Which of the following is the most liquid asset?

Correct AnswerverifiedShow Answer

The Fed has complete control over the money supply.

Correct AnswerverifiedShow Answer

According to the quantity theory of money, inflation is caused by

Correct AnswerverifiedShow Answer

To increase the money supply, the Federal Reserve could

Correct AnswerverifiedShow Answer

If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ________ the real-world multiplier.

Correct AnswerverifiedShow Answer

Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.

Correct AnswerverifiedShow Answer

The statement, "My iPhone is worth $300" represents money's function as

Correct AnswerverifiedShow Answer

Economies cannot function without money.

Correct AnswerverifiedShow Answer

Which of the following is not counted in M1?

Correct AnswerverifiedShow Answer

Which of the following tools of monetary policy is used least often?

Correct AnswerverifiedShow Answer

Although gold is highly valued by most people, it is difficult to use as a medium of exchange. Explain.

Correct AnswerverifiedGold is an example of commodity money. T...View AnswerShow Answer

Among potential stores of value, money

Correct AnswerverifiedShow Answer

Which of the following best describes how banks create money?

Correct AnswerverifiedShow Answer

The German Hyperinflation of the early 1920s was caused by

Correct AnswerverifiedShow Answer

An increase in the purchasing power of money need not lead to an increase in the purchasing power of income because the falling price level would likely mean falling wages and salaries.

Correct AnswerverifiedShow Answer

In the United States, each bank panic in the late nineteenth and early twentieth centuries was accompanied by

Correct AnswerverifiedShow Answer

The quantity equation states that

Correct AnswerverifiedShow Answer

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

Correct AnswerverifiedShow Answer

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

Correct AnswerverifiedShow Answer

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Gold is an example of commodity money. T...
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